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Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware

Brooks Plumbing Products Inc. (BPP) manufactures plumbing fixtures and other home improvement products that are sold in Home Depot and Walmart as well as hardware stores. BPP has a solid reputation for providing value products, good quality, and a good price. The company has been approached by an investment banking firm representing a third company, Garden Specialties Inc. (GSI), that is interested in acquiring BPP. The acquiring firm (GSI) is a retailer of garden supplies; it sees the potential synergies of the combined firm and is willing to pay BPP shareholders $39 cash per share for their stock, which is greater than the current stock price; the stock has traded at about $34 in recent months. Summary financial information about BPP follows.

2019 2018 Industry Average
Cash $80,029,778 $3,566,227
Accounts Receivable 56,888,465 87,415,771
Inventory 39,775,416 60,004,645
Long-lived assets
Gross book value 167,388,377 143,888,377
Net book value 100,730,809 95,997,302
Repalcement cost 170,697,409 188,575,338
Liquidation value 68,844,002 67,445,209
Current Liabilities 119,155,766 121,116,274
Long-term debt 32,107,364 38,006,302
Shareholders' equity 126,051,338 87,751,369
Capital expenditures 23,610,000 13,100,336
Sales 668,634,771 639,876,465
Cost of Sales 668,634,771 639,876,465
Operating expense* 102,777,355 134,875,229
Income tax rate 36% 36% 36%
Depreciation expense 18,876,493 15,774,254
Dividends 2,860,000 1,360,000
Year-end stock price 36.88 24.09
Number of outstanding shares 26,789,554 23,863,554
Sales multiplier 1.40
Free cash flow multiplier 8.80
Earnings multiplier 13.40
Cost of capital 6.3% 6.3%
Accounts receivables turnover 6.60
Inventory turnover 8.60
Current ratio 1.90
Quick ratio 1.20
Cash flow ratio 1.40
Free cash flow ratio 1.20
Gross margin percentage 34%
Return on assets (net book value) 19%
Return on equity 27%
Earnings per share $2.38

Required

a. What are the valuations of BPP (for 2019) using the multiples-based methods for free cash flow?

b. What are the valuations of BPP (for 2019) using the discounted free cash flow method, assuming that the 2019 amount of free cash flows continues indefinitely?

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